Investcorp Credit Management BDC (ICMB) risk factors, FY2024 10-K

Risks Relating to Our Business and Structure

1. 01Because we finance our investments with borrowed money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us
2. 02Regulations governing our operation as a BDC affect our ability to, and the way in which we raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage
3. 06We depend upon key personnel of the Adviser for our future success. If the Adviser were to lose any of its key personnel, our ability to achieve our investment objective could be significantly harmed
4. 07Our business model depends to a significant extent upon our Adviser’s network of relationships. Any inability of the Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business
5. 08Our relationship with Investcorp may create conflicts of interest
6. 09There are significant potential conflicts of interest that could negatively affect our investment returns
7. 10The members of the Investment Team may, from time to time, possess material non-public information, limiting our investment discretion
8. 11In addition, our debt facilities may impose financial and operating covenants that restrict our business activities, including limitations that hinder our ability to finance additional loans and investments or to make the distributions required to maintain our qualification as a RIC under the Code
9. 12Provisions in the Capital One Revolving Financing or any other future borrowing facility may limit our discretion in operating our business
10. 13borrowing facility or make deposits to a collection account, either of which could have a material adverse impact on our ability to fund future investments and to make stockholder distributions
11. 14Because we borrow money to make our investments, if market interest rates were to increase, our cost of capital could increase, which could reduce our net investment income
12. 15Our financial condition, results of operations and cash flows will depend on our ability to manage our business effectively
13. 16The involvement of our interested directors in the valuation process may create conflicts of interest
14. 17We may need to raise additional capital to grow because we must distribute most of our income
15. 18Our distributions to stockholders may be funded, in part, from waivers of investment advisory fees by the Adviser
16. 19We may invest in derivatives and other assets that are subject to many of the same types of risks related to the use of leverage
17. 20We have adopted updated policies and procedures in compliance with Rule 18f-4. We do not expect to enter into derivatives
18. 21As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets
19. 22Substantially all of our portfolio investments are recorded at fair value as determined in good faith by our board of directors and, as a result, there may be uncertainty as to the value of our portfolio investments
20. 23We adjust quarterly the valuation of our portfolio to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized appreciation or depreciation
21. 24As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act
22. 25Our board of directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval
23. 26Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
24. 27repealed or our board of directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer

Risks Relating to the Adviser or Its Affiliates

1. 03Our incentive fee may induce the Adviser to make speculative investments
2. 04The Adviser’s liability is limited under the Advisory Agreement and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account
3. 28The Adviser’s incentive fee structure may create incentives to it that are not fully aligned with the interests of our stockholders
4. 29We may be obligated to pay the Adviser incentive compensation even if we incur a loss and may pay more than 20.0% of our net capital gains because we cannot recover payments made in previous years
5. 30PIK interest payments we receive will increase our assets under management and, as a result, will increase the amount of Base Management Fees and Incentive Fees payable by us to the Adviser
6. 31Our incentive fee arrangements with the Adviser may vary from those of other investment funds, account or investment vehicles that the Adviser may manage in the future, which may create an incentive for the Adviser to devote time and resources to a higher fee-paying fund
7. 32The Adviser can resign as the Adviser or administrator upon 60 days’ notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations
8. 33There are conflicts related to other arrangements with the Adviser

Risks Relating to Our Investments

1. 05The lack of liquidity in our investments may adversely affect our business

Risks Relating to our Investments

1. 34Economic recessions or downturns could adversely affect our portfolio companies, leading to defaults on our investments, which would harm our operating results
2. 35Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation
3. 36principal market and enterprise values
4. 37We may hold the loans and debt securities of leveraged companies that may, due to the significant operating volatility typical of such companies, enter into bankruptcy proceedings, and we could lose all or part of our investment, which would harm our operating results
5. 38There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims
6. 39Our investments in private and middle-market portfolio companies are risky, and we could lose all or part of our investment
7. 40Our investments may include PIK interest
8. 41We may expose ourselves to risks if we engage in hedging transactions
9. 42We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer
10. 43Our portfolio may be concentrated in a limited number of industries. A downturn in any particular industry in which we are invested could significantly impact the aggregate returns we realize
11. 44Our investments in the commercial services and supplies industry face considerable uncertainties including uncertainty related to seasonality and market forces
12. 45Our investments in the professional services industry face considerable uncertainties including significant regulatory challenges
13. 46Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
14. 47preserve or enhance the value of our investment
15. 48Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
16. 49Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and ability to make stockholder distributions and result in a decline in the market price of our shares
17. 50Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
18. 51The disposition of our investments may result in contingent liabilities

Risks related to the transition away from LIBOR

1. 52We may not realize gains from our equity investments

Risks Relating to an Investment in Our Common Stock

1. 53We cannot assure you that the market price of shares of our common stock will not decline
2. 54There is a risk that you may not receive distributions or that our distributions may not grow over time or a portion of your distributions may be a return of capital
3. 55We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive
4. 56Stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan
5. 57Our shares might trade at premiums that are unsustainable or at discounts from net asset value
6. 58Investing in our common stock may involve an above average degree of risk
7. 59The market price of our common stock may fluctuate significantly
8. 60general economic trends and other external factors
9. 61Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
10. 62Our board of directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners

Risks Relating to an Investment in Our Notes

1. 63The 2026 Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future and rank pari passu with, or equal to, all outstanding and future unsecured indebtedness issued by us and our general liabilities
2. 64The 2026 Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries
3. 65The indenture under which the 2026 Notes are issued contains limited protection for holders of the 2026 Notes
4. 66create restrictions on the payment of dividends or other amounts to us from our subsidiaries
5. 67There is no active trading market for the 2026 Notes. If an active trading market does not develop for the 2026 Notes, you may not be able to sell them
6. 68If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2026 Notes
7. 69We may choose to redeem the 2026 Notes when prevailing interest rates are relatively low
8. 70We may not be able to repurchase the 2026 Notes upon a Change of Control Repurchase Event

Risks Related to U.S. Federal Income Tax

1. 71We will be subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code
2. 72We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income
3. 73We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business

Risks Relating to the Current Environment

1. 74Political, social and economic uncertainty creates and exacerbates risks
2. 75The effects of a public health emergency may materially and adversely impact (i) the value and performance of us and our
3. 76Any public health emergency or any outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments and our portfolio companies
4. 77Adverse developments in the credit markets may impair our ability to secure debt financing
5. 78Further downgrades of the U.S. credit rating, impending automatic spending cuts or another government shutdown could negatively impact our liquidity, financial condition and earnings
6. 79Global economic, regulatory and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability
7. 80Capital markets disruption and economic uncertainty may make it difficult to extend the maturity of, or refinance, our existing indebtedness or obtain new indebtedness and any failure to do so could have a material adverse effect on our business, financial condition or results of operations

General Risks

1. 81Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk
2. 82The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively
3. 83We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends
4. 84Increased geopolitical unrest, terrorist attacks, or acts of war may affect any market for our common stock, impact the businesses in which we invest, and harm our business, operating results, and financial conditions
5. 85Changes to United States tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us
6. 86Economic sanction laws in the United States and other jurisdictions may prohibit us and our affiliates from transacting with certain countries, individuals and companies
7. 87Impact of Russian Invasion of Ukraine
8. 88The effect of global climate change may impact the operations of our portfolio companies
9. 89We may experience fluctuations in our quarterly operating results
10. 90New or amended laws or regulations governing our operations may adversely affect our business